FIRST BRRR Complete! Details + Pictures!

301 Replies

Originally posted by @James Gates :
Originally posted by @Justin Dao:

Hey @James Gates,

Thank you for sharing your story. As an OOS investor, on which occasions did you feel the need to fly out to Alabama? To meet the team/on closing the property? Any other reason why you may have flown out there?

Second question, it seems like a silly and simple logistical question, but what do you do with the keys if you close from afar? Do you trust a team member to hold onto them or do you get a combination lock with the keys inside and hang it on the door?

Hey Justin, I did feel the need to fly out to the area the first time to meet the boots on the ground team face to face, but after that, I did not fly out again until after we had purchased and completed the rehab. I did a post inspection with the contractor, but looking forward I do not feel the need to do that again now that the team is in place.  

GREAT logistical question. This is where having a good team can save you so much headache on such a simple thing. My Property Management and contractor have been able to pick up keys from escrow on the properties, and place them in a lock-box at the property so that everyone on the team has access to the property.

James, 

Do all your team members know each other or do they all work independently?  I'm curious who your primary team member is and how you get the various team members to check on others work.

Originally posted by @Amit G. :

Great work @James Gates! Congrats... 

Would you mind reiterating your rehab breakdown here if haven't already done so?  I am curious as 18k sounds like a very reasonable number for inside outside rehab.

 Luckily for us in this property, the owner had already been fixing the place up (he had just completed the kitchen, and had partially completed the bathrooms as you can see by the pictures). The rehab broke down like this:

New roof $3800

New Exterior Fence $1800

Electrical Work: $2000

Backyard Pool Removal/Landscaping: $5500

Interior Stairs + Misc: $5100

Originally posted by @Evan Lagerloef :

Congrats @James Gates! That's awesome to hear, I'm looking at doing the BRRRR strategy in the near future as well! I'm curious how you decided on the area of Huntsville, AL. I would like to invest in other areas but it is overwhelming trying to narrow down possible locations. What are some of the traits you were looking for that made you decided on AL?

 Hey Evan,

I choose Huntsville because it is a nice mix of a cash-flowing market and a market with a shot at long term appreciation. Other traits that I was looking for that Huntsville has:

Population Increase

Very low taxes

Tech Jobs

Stable, Linear Market

Originally posted by @Payton Pearson :

I would love to hear what you think about long-distance investing--your experiences thus far.

 I am greatly enjoying the experience so far. I do not have the capital to invest in the expensive market that I live in, and am not looking to gamble on California appreciation, so investing long-distance was my only choice. If you do the research and prepare, you can absolutely make it happen. 

Originally posted by @James Middleton :

@James Gates Congratulations James! A couple questions. Are all your properties in the Huntsville area? If not where else?

And how did you go about hiring your GC? (A big concern of mine when it comes to long distance investing) I'm assuming the physical trip to Huntsville was a big difference. Again Congrats!

 All of our units are in the Huntsville Metro Area, 3 of them are in Huntsville itself, 1 in Decatur, and 2 in Madison.

I hired our GC based on an initial referral from a trusted and vetted source, as well as a phone and in-person interview. If you haven't had a chance to read David Green's book on long-distance investing, he has a chapter on managing contractors that I found extremely helpful.

Originally posted by @Hoang Nguyen :

@James Gates

Great job! That improve Brrrr can be done with a right team. Please update next project going

Thanks Hoang! We are in the middle of our biggest BRRRR yet so when its completed I'll type up an even more detailed wrap-up!

Originally posted by @Franklyn Williams :

@James Gates. Great story James. It was very inspiring I had to circulate it.  And thanks for taking the time to answer so many questions from so many folks as your answers were as insightful as your story. The common thread in both, it seems, is that folks should do some homework/ground work, be conservative with their numbers, work well with others, and above all just get started while continually learning and perfecting the processes as one progresses.

You're a good reminder of what Les Brown says, "you don't have to be great to get started, but you do have to get started to be great."

Best of luck!

Franklyn,

Thank you for the kind words and LOVE that quote! 

Originally posted by @Jami Krietzman :

Congratulations James! This is awesome! We are beginning our journey. We just finished setting up an operating agreement as we decided to set up 2 partnership businesses; one for fixing and flipping, and one for BRRRRing. We our utilizing money from the sale of our home and also some stocks we cashed in as well as a self-directed IRA. I do have some questions for you though.

Did you retain a real estate attorney in Alabama to assist you with contracts and legal aspects?

Did you retain a local realtor and contractors and how hard was that process?

Are you using a property manager to manage your rentals?

Again, excellent job and congratulations!  Reading your post just motivated us even more!

Looking forward to hearing your responses!

Have an excellent week!

Health, Happiness & Blessings!

Jami

 Hey Jami,

1) No real estate attorney in Alabama, we closed with the title company.

2) We have purchased one of our properties off the MLS and are working with a local Realtor, but most of the properties we have purchased are off-market. We found our contractor through a BP referral.

3) Professional PM on every rental. This is a MUST.

Originally posted by @Michael McBee :
Originally posted by @James Gates:
Originally posted by @Terri O'Brien:

@James Gates - what a great journey and thank you for sharing that. You are an inspiration to all of us getting started. I own a house in Denver, Colorado and just took out a HELOC of $55k but cannot buy any rental properties here...so I am concentrating on an area I grew up in on the East Coast where my family still lives. Can I ask you - how did you find your partners?

 Hey Terri,

Awesome job on the HELOC, it's a great strategy for "transferring" passive equity from one property to active equity in another.

I found my partners through a variety of ways. My primary business partner was an old co-worker of mine who is extremely like-minded when it comes to goals, attitude, and motivation.

Another partner was found on BP! I did a search for members in my area, asked him to coffee, and it blossomed into a partnership on two properties.

Another partner was simply a mutual friend who heard and saw what I was doing with Real Estate, asked for a sit down meeting, and when I showed him the numbers jumped right in!

 My question is...When partnering with people that you just met, what are some qualities that you look for other than motivation and like-mindedness. Would you recommend partners that live out of town? I am looking for partners also.

 When partnering I am looking for an individual I could see myself working multiple deals with. Putting together a partnership is like any relationship, the best ones take time to build and the best ones last. I would be looking for commonalities in attitudes, goals, and mindset, however I would be looking for differences in skill-sets. The best partners cover the gaps of the other partner. Something that has always resonated with me is what @Brandon Turner says on the podcast, you can bring 3 things to the deal:

1) Money

2) Time

3) Hustle/Experience

Find out what you can bring to the deal, and find a partner that if you were to work together you would be able to fill in all 3 gaps.

Originally posted by @Jolyn Chen :

That’s amazing and thank you for sharing. So great to read about people doing long distance investing. I’m just getting started and in that first phase where you were with analysis paralysis and gobbling up as much info as possible. I live in Los Angeles and definitely am looking for out-of-state investing. I had some questions if you can share :

1. How did you crunch the numbers to make sure it’s a good deal

2. Is there a good rule of thumb to account for all the expenses like fees and vacancy?

3. How did you find a good rehab team out of state?

Thanks again for sharing! Hope to be where you are soon!

-Jolyn 

1) Learning to crunch the numbers in real estate is crucial. Have you checked out Biggerpockets webinars or youtube videos? I distinctly remember watching a youtube video over a year ago where crunching the numbers finally "clicked." In that video Brandon walks you through every step of running the numbers on a SFH and plugging them into the BP calculator.

2) I generally am not a fan of rules of thumb as they do not take into account the variables of the specific property (for example, Alabama has ridiculously low taxes, so using a general rule of thumb when comparing Alabama to Texas can get you hundreds of dollars off a month in cash-flow), however these are the two most common rules of thumbs I see on this website.

The 1% Rule: If a property can rent for 1% of the purchase price per month, it has a good possibility of being a good investment. For example a $100,000 property should rent for $1000 a month. 

The 50% Rule: If a property can cash-flow after assuming 50% for all expenses (not including financing costs), it has the possibility of being a good investment. So if a property can rent for $1000 a month and the mortgage is $490, the investment has potential if you assume expenses of $500 (50% of $1000).

Rules of thumb are just general guidelines for initial due diligence, run the actual numbers by getting insurance quotes, checking tax records, etc!

Originally posted by @Michael McCoy :

@James Gates

Congrats from 1 Californian to another! I enjoyed your story and the journey. I live in Westwood near UCLA and too took the leap a few years ago and own 3 out of state rentals in Northern OH. I hope to move to multifamily next as well.

Good luck in all your endeavors!

Michael McCoy

Hey Michael!

Thanks! I went to school at UCLA and lived in Westwood for a few years, love that area. Nice job on the out of state rentals! We are looking to transition to multi-family in a few years.

Good luck as well! 

Originally posted by @Alexcia White :

@James Gates such a awesome story thanks for sharing it's a great inspiration for me as I am undecided on purchasing my own home or start off with BRRRR method first, what would you recommend? I thought to take out HELOC you have to own your home for over two years? Can you elaborate more on how the cash out refinance works? Thanks again for sharing...

 Hey Alexcia,

The decision to purchase your own home or invest in Real Estate is a personal one. For my wife and I, it was very important to have our own home first. It was a goal we had been saving for long before I found BP. I do not regret purchasing our primary residence first, even though if we did not we could have quite a few more rentals.

For a HELOC, the bank will give you a "2nd mortgage" based on the equity you have in your home minus the debt you owe on it. Most banks will generally loan on a HELOC up to 80% of the homes value, and then subtract the debt. For example, if you own a home worth $300,000, that has a $200,000 mortgage on it, you would be able to get a HELOC for $40,000 (80% of $300,000 is $240,000, minus the debt you owe).

Our lender was able to give us a HELOC after 3 months, most banks I talked to said we had to wait 1 year. Every bank has different criteria, call around!

Originally posted by @Kayla Oliver-Pratt :

Awesome story! Similar to our story...but we're still on our first rental property and I'm ready to make another purchase. If only we can get access to some of the equity in our primary home! What bank did you go to for the cash-out refinance?

We used a local credit union who lends to alumni of the UC college system. It took a while for me to find a bank that would offer a HELOC product for our specific situation. My best suggestion is to spend a morning calling every bank in the area.

Originally posted by @Ryan Slicer :

@James Gates

Congrats on your success here and thank you for sharing your experience! I currently fix/flip and plan to move in this direction.

If you were to do it all over...what would you do differently and what do you wish you would have known before diving in?

 Hey Ryan,

If I were to do it over again I would communicate more clearly with my general contractor and property management the expectations of the project. The properties rehab and management went for the most part pretty smooth, but there were some minor hiccups when it came to scheduling that slowed the project down 2 weeks longer than we thought. 

For example, after we removed the pool from the backyard and placed brand new lush Zyosia sod, the contractor went to water the grass and the water on the property was not turned on. I had asked the property management two weeks before to turn on the water in their name (this is customary for that utility company), and they had told me they had set it up but it fell through the cracks. I had brand new sod that needs to be watered multiple times a day just sitting there without water. It took the utility company three days to turn on the water. Ultimately I take full responsibility for this scheduling mishap, as I should have followed up with the PM after the request.

All in all, I am thankful for the mistakes I made because for the next project we will be better because of it.

Originally posted by @Rehaan Khan :

congratulations! So if you wanted to sell this property. Would it sell for $100K meaning around a $20K profit in cash?

 Hey Rehaan,

The property would probably sell for just over 100K, which would be around 20K in GROSS profit, but with transaction costs and large taxes on flips/investment properties, we have no plans to sell. Our 5-7 year plan is to rent, collect cash flow, and reinvest cash flow. In the future when the principal has been paid down a little, inflation has eaten away the debt, appreciation (strong neighborhood) has lifted the value near 130K, we will "sell" the property with a tax-deferred 1031 exchange so limit our tax liability. 

Originally posted by @Gerald McCullough :

@James Gates Do you have a property manager for them? How did you structure the partnerships?

 1) Yes, property management is a necessity if you want to scale your business.

2) Every partnership is different, on this deal both partners put up 50% of the capital for 50% of the equity. I found the deal and managed the rebab, but since this was my first investment property we structured everything 50/50. Could I have asked for more equity since I was putting up half the money and doing most of the work? Probably? Should I have? In my opinion, no. I had no credibility, I had never done this before. Don't get greedy. 50% of a great deal is better than 0% of no deal. I did not have enough capital to do this deal on my own, a partnership allowed me to get the ball rolling. 

Originally posted by @Tiffany Hibbs :

Thanks for sharing.  So how much did you originally owe on the loan and how much do you owe now?

 There was no original loan, the property was purchased in cash.

After the refinance, I owe 75% of the appraised value of the home, or $78,500.

Originally posted by @Ronnie Fielder :
Originally posted by @James Gates:
Originally posted by @Justin Dao:

Hey @James Gates,

Thank you for sharing your story. As an OOS investor, on which occasions did you feel the need to fly out to Alabama? To meet the team/on closing the property? Any other reason why you may have flown out there?

Second question, it seems like a silly and simple logistical question, but what do you do with the keys if you close from afar? Do you trust a team member to hold onto them or do you get a combination lock with the keys inside and hang it on the door?

Hey Justin, I did feel the need to fly out to the area the first time to meet the boots on the ground team face to face, but after that, I did not fly out again until after we had purchased and completed the rehab. I did a post inspection with the contractor, but looking forward I do not feel the need to do that again now that the team is in place.  

GREAT logistical question. This is where having a good team can save you so much headache on such a simple thing. My Property Management and contractor have been able to pick up keys from escrow on the properties, and place them in a lock-box at the property so that everyone on the team has access to the property.

James, 

Do all your team members know each other or do they all work independently?  I'm curious who your primary team member is and how you get the various team members to check on others work.

The team members did not know each other at the start of the project, but they were in communication with each other throughout the rehab period. My primary team member was the contractor. Accountability is huge. I would have biweekly phone calls with the contractor, and ask for an end of day report via text/pictures to check on how the project was coming along.

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